Why economic freedom matters?

Posted on March 4, 2016

To discuss the issues on economic and political freedom, the members of Liberty Discussion Group sat down on 3 March 2016 at Gaia Restaurant and Coffee Shop, Thamel. The reading for this month’s discussion was eminent economist Milton Friedman’s essay titled “The Power of the Market.” As per the agreement in the last month’s discussion, we identified the following discussion agendas beforehand through our Facebook Page:

Pricing of goods

Productive efficiency

Voluntary Cooperation

Harsh working conditions: choice or compulsion?

Possible lessons for Nepal

Some of the issues that the attendees discussed were:

Given that there is economic freedom, people are already empowered and the government cannot ignore the demands of the people. So political freedom will be automatically instituted.

Taking an example of the economically prosperous places like Hong Kong and the Middle East, we can observe that when people reach a level of economic prosperity, they start demanding political freedom. For instance, the Umbrella Revolution and Arab Spring.

Even without political freedom, we can assure economic freedom like in the case of Hong Kong. Refugees from mainland China settled in Hong Kong and the then governor found it too costly to regulate them. So there were no regulations and free market was spontaneous. But having said that, the attendees highly doubted that it should not be taken as a lesson to move towards a “benevolent dictator” system that is also popularly discussed in Nepal; the doubt was that making a deliberate switch in the hopes that economic freedom (although without much political freedom) might trigger some sort of economic growth that Nepalese people have long been seeking will mean that the turn of events are no more organic, and the attendees were at one that positive changes could only come about if the series of events were organic.

So where does Nepal stand in terms of economic freedom? Looking at the economic freedom report (produced by the Fraser Institute), we rank low in economic freedom. We can take example of ‘Kirana Pasals’ (Small mom and pop store) to see how this is true. There is a long list of regulations that the owners have to comply with, and therefore they usually operate informally. This makes them highly vulnerable to the discretionary powers of the regulators.

Talking about the drawbacks of economic freedom, there are issues about externalities. But we should be cautious, not to law down too many restrictions up-front (before people even engage in different kinds of economic activities). A better approach will be to introduce interventions, if the need is felt after the an economic venture comes into operation.

If there’s a job that is highly paid, that means there is a huge demand for it because they add high value to the business. Everybody is making their voluntary choice and they always have the choice to explore their creative potential if they don’t like the working conditions or their wage in the market.

Minimum wage is a constraint to creativity. When your wage is fixed, you don’t have the incentive to explore your potential to earn higher. Wages should be determined through an incentive mechanism.

Suresh Sapkota, who is a regular attendee of the Liberty Discussion Session, and a lecturer at Nepal Kastamandap College, floated the idea that most students aren’t familiar with the concepts of economic freedom, so it would be fruitful to have an interaction with students. He decided to further continue the discussion with his Bachelors of Business Administration students to engage them in a new kind of discourse given that the Nepalese academia is largely dominated by the Keynesian school of thought.

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Liberty Discussion

Liberty discussion is a monthly discussion forum for young students who are enthusiastic about discussing the political economic dimensions of the reality around them. Happening every last Friday of the month, the discussion brings in about a dozen young students together who love discussing ideas and opinions and are enthusiastic about the political economic dimensions of the reality that surrounds us. Discussions are based on an article that is floated among participants at least a week in advance.

To get invites to the discussion, send us an email at info@samriddhi.org with your name, contact and areas of interest.